Monday, 31 March 2014

Managing Service Level Agreements

Managing Service Level Agreements


Nearly everyone is familiar with Service Level Agreement (SLA). This is a covenant between two parties for the delivery of service to a certain standard and at pre-defined and agreed upon periods. Historically, SLAs were executed between a company and a service provider. There is basically no end to what can be passed through an SLA contract.                        
This is easier said then done. Today's business processes are a complex amalgamation of compartmentalized departments that run distinct services. This is matched only (and in some cases exceeded) by technology that is as dynamic as the business processes it purports to serve.

What is worst as the technology for providing the service grows in complexity so, too, does the challenge of assessing service results and performance.

"With highly complex environments, senior managers may run the risk of wasting resources on tools that may not effectively satisfy the client needs. It takes time to define a service, set metrics for benchmarking its success, and monitor those metrics to ensure compliance," said Nair.

Challenge beyond understanding

The good news is that a new breed of business managers and decision makers are coming in force. They understand what IT is trying to sell and are thus able to agree in principle with IT as to what constitutes service levels and are able to agree on the end objectives.

Pacquet says the problem actually lies in the implementation. SLMs are still implemented from the perspective of making IT look good, at the expense of the end user.

"The end user pays the bills and yet IT continues to ignore the needs of the very people it is meant to serve, IT itself needs to become more service oriented," admonishes Pacquet.

Bottom-line impact

Experts like Arundell agree that SLM is key to improving bottom line performance and productivity of the company as a whole. Many organizations depend on innovation to gain competitive advantage, reduce costs, and develop new products and services. Crucial to delivering innovation is IT enablement and focus. SLM aligns and prioritizes IT needs to the business strategy and operations.

"Successful SLM needs time not only from the business and IT units but also from the end users to define expectations, measure and maintain performance. Hence SLM might be perceived as holding back progress instead of driving better services," says Nair.

If done correctly and successfully, Gartner calculates on average a 20-35 percent improvement from an operational perspective. "This can come in the form of improvements in quality of service, lowering costs and agility. However, the mileage will vary depending on the conditions of service delivery before SLM gets implemented," say Pacquet.

Benefits versus costs
A CIO once quipped that lowering the cost of ownership itself costs a fortune because it takes an investment cycle to drive these costs down. "However, if you don't drive these costs down, you end up in this vicious cycle where quality of service is constantly going down and costs constantly going up," he says..

Pacquet cites the example of the IT organization whose response to orders to cut cost is to implement standards for its infrastructure and the services it delivers. Then the business may want to implement a non-standard solution in order for a specific project.

When IT complies and uses the non-standard equipment costs go up and complexity go up. When the business complains about the rise in cost IT can then explain that by choosing a non-standard solution the business is responsible for the higher costs.

By having SLM in place, associated costs will be clearly defined for exceptions such as non-standard solution. This gives the business unit the ability to decide whether they want to go ahead and implement the non-standard solution and incur the higher costs, or stick with standards already in place.

Without SLM such a conversation does not exists and creates the wrong assumption within the business that the non-standard costs the same. An error that can cost the company more than it bargained for.

Essential steps to a successful SLM program

Pacquet lists five essentials for a successful SLM program as follows:

1. Define a service in the language that the user understands. This is the service. This is what it means. This is what is supported and what is not supported. This is how it will be reported, communicated, charged.

2. Understand the costs at a granular level, identifying all the different cost elements involved in the delivery of a service. This will give IT the ability to also execute improvement programs aimed at reducing further these costs.

3. Price the service delivery accordingly. There will be projects in the future where the business may not see immediately value for it. So price some of the services to allow for some buffer to pay for these yet-to-be-accepted services.

4. Implement differentiated charge backs to reflect the differentiated levels of service you have on offer. Avoid offering gold service at the price of bronze. Everyone will want to get gold service at the price of bronze. So be firm on the price but never sacrifice on the quality.

5. Have regular service reviews. Reviews are a communication and marketing mechanism for IT to show to business how it is improving and helping the business. Identify through this dialogue with the business on what else is needed by the business.

A feedback loop is thus created where both business and IT are able to help each other improve.

Author: Jose Allan Tan
Link: Source

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